News for 28 Mar 2008
- Lehman traded lower yesterday by 8.9% to $38.71 on rumors that the firm is "short on cash". Keep in mind this same type of rumor and corresponding sell-off happened with Bear three weeks ago. I'm not saying the same is going to happen with Lehman but I am saying taking caution in trading this name. The shares have fallen 41% percent this year amid the $200 billion in industry-wide losses. I wouldn't be surprised to see more weakness in this stock over the next week or so.
- The number of bearish put options traded on Lehman's stock exceeded call options by 3-to-1 and put volume in the first three hours of the day topped the daily average of the past 20 sessions. This is a very bearish sign with respect to investor sentiment as it applies to LEH. Puts are generally bought by people who believe that the stock will go down in value while calls are usually a bet on the upside. In this case, people were buying puts "hand over fist."
- Lehman's response to the trading action: "There are a lot of rumors in the marketplace that are totally unfounded,'' Cohen said in a telephone interview with Bloomberg yesterday. "We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic self interest.''
- And here's an interesting note reported by Bloomberg that dissects a huge put trade today:
A so-called bear spread of almost 20,000 Lehman options contracts traded at 9:51 a.m., according to traders and Bloomberg data. An investor using the strategy buys puts while simultaneously selling them at a lower strike price. The position reduces the overall cost of the trade and also caps the total potential profit if the stock falls.
When the Lehman spread traded, the stock was at $42.05, down 1 percent from the previous close. Thirty-five minutes later, the shares had plunged 8.3 percent to $38.55.
- Hmmm! Sounds like some traders are going to get burned. Its been my experiences that more times than not, when people take a huge "speculative, rumor-based, negative" position like this...they usually lose. This is action that great to watch but I wouldn't dare engage into. This one will be fun to see unfold.
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